A year after his initial estimate that Waymo was likely a $75 billion startup, Morgan Stanley analyst Adam Jonas raised it to a staggering $175 billion, citing greater revenue potential from passenger ride services and licensing of its tech. The biggest source of future revenue, however, is likely to come from autonomous trucking and delivery services, which Jonas thinks could generate as much as $90 billion.

Waymo’s pilot program in Atlanta, in which the company is testing a small fleet of Peterbilt semi-trucks loaded with its sensors, software and computers to handle deliveries for Google data centers, points to a future in which it could “address roughly 80% of the ~$3.1trln global (~$900bn US) freight transportation market and evolve into a logistics player for long-haul and last-mile delivery,” Jonas wrote in an August 7 research note.

“Autonomous vehicles should eventually enable faster and cheaper last mile delivery, improving the customer experience by potentially enabling <1 hour delivery from local stores to the customers' homes rather than from a centralized warehouse to the customer, while narrowing the margin gap between store and eCommerce sales,” Jonas said. As a result, “Waymo could help traditional retailers better compete (from a cost and service perspective) against Amazon.”

The upbeat outlook comes as Waymo prepares to start a revenue-generating robo-taxi service in the Phoenix area this year, allowing residents to hail one of its Chrysler Pacifica minivans using a company-designed app to ferry them to work, school, the airport or to run errands. Some 400 early riders have been using the service for free this year, increasingly with no human safety driver at the wheel, but Waymo intends to begin charging for those rides at some point in 2018.

Under CEO John Krafcik the former Google Self-Driving Car project has evolved from lavishly funded science project to a company with four specific targets to deploy its technology. Those include ride services; deliveries and trucking; working with transit agencies to provide last-mile transportation services; and licensing its tech to automakers for use in personal vehicles. With an announcement last week that it has a pilot with Phoenix’s Valley Metro transit service, Waymo has made progress on all four targets.

Competition in the space is fierce and global, with General Motors’ Cruise emerging as Waymo’s most formidable U.S. rival in autonomous driving, China’s Baidu leading a push for its “open source” Apollo self-driving software platform, and intriguing startups like Zoox aiming to leapfrog Waymo with an even more futuristic robo-taxi service. Elon Musk has set a goal for Tesla to be an autonomous tech leader and this month said the company developed a new computer chip to greatly enhance the capabilities of its Autopilot drive-assist system. But given how little public data Tesla has shared about its progress with fully autonomous capabilities, it’s not possible to know where it stands relative to Waymo, Cruise and others.

Meanwhile Uber, which once seemed on course to be a major challenger to Waymo, has dialed back its autonomous vehicle program, notably by shutting its self-driving semi-truck program in July. The rideshare company’s program remains under a cloud since a fatal March accident in which one of its autonomous Volvo XC90s and the SUV's safety driver failed to stop in time to avoid a pedestrian crossing a dark street in Tempe, Arizona.

The potential for Waymo at this point, however, is so great that it’s the core reason Morgan Stanley has boosted its target for Alphabet shares on a “sum of parts” basis to $1,550 from $1,400, Jonas said.

Waymo’s ride service potential is now likely worth $80 billion, and could even see licensing fees worth about $7 billion.

“We see this business as being somewhat similar to search in its early days when Google paid other publishers to use its search technology,” Jonas said. “We believe Waymo is in discussions with ‘more than 50%’ of the global auto industry by volume as it relates to the personal vehicle opportunity.”

I write about technology-driven changes that are reshaping transportation and cities from Los Angeles, the U.S. capital of cars and congestion. I've covered global automakers, advanced vehicle tech and environmental policy for two decades, including 15 years with Bloomberg N...